How to Identify a Trading Scam

Introduction to Identifying Trading Scams

Have you ever come across an investment opportunity, website, or course that made you wonder if it might be a trading scam? As a seasoned trader and the founder of Enlightened Stock Trading, I’ve seen my fair share of suspicious claims. In this guide, I’ll help you spot the red flags that often signal a scam, starting with the type of results they promise.

Identifying Trading Scams Based on The Returns They Offer

Too Good to Be True: High Returns

If the returns seem too good to be true, they probably are. We all know this intuitively, yet it’s easy to get excited when someone dangles the prospect of extraordinary gains before our eyes. That excitement should be your cue to get skeptical. The higher the promised returns, the more cautious you should be. There’s no such thing as a free lunch in trading. If someone is guaranteeing returns of 100%, 200% per year, or 20% per month, you can be almost certain it’s a scam.

Guaranteed Trading Results

Any claim that guarantees a specific return on your investment is a major red flag. Financial markets are inherently volatile, and no one can predict exactly how much you’ll make. If a course, system, or brokerage guarantees returns, it’s best to walk away. There are no profit guarantees in trading—period.

Profit Linked to Deposit Size

Beware of schemes where the amount of profit supposedly scales with the size of your deposit. For example, if they promise a 25% return for a $5,000 deposit but 60% if you deposit $100,000, it’s likely a scam. Legitimate investment opportunities don’t tie returns to deposit sizes in this way.

Unrealistic High Returns

Consider how much the world’s top hedge fund managers make—often around 40-50% annually, if that. If someone is claiming to outperform these seasoned professionals by a wide margin, be very skeptical. The more they claim to make, the higher the likelihood that it’s a scam. Keep in mind, even the best in the business don’t consistently earn hundreds of percent per year.

Quoting Returns Per Month or Week

Promising returns on a daily, weekly, or even monthly basis is another warning sign. Markets are volatile, and profits can’t be neatly packaged into consistent time frames without taking on immense risk. If you encounter claims like these, it’s best to steer clear.

Ignoring Volatility of Returns

If a program or system only talks about how much money you can make and ignores the potential downsides or volatility, that’s a big warning sign. In trading, there’s always risk involved. If someone claims otherwise, they’re likely misleading you.

Consistent High Returns: A Red Flag

Consistent, high returns are another hallmark of a potential Ponzi scheme. I once met a trader who promised smooth, high returns but couldn’t answer any of my detailed questions about his methods. If someone guarantees consistent high returns, it’s likely too good to be true.

High Winning Trade Percentage

If a course or system claims an extraordinarily high winning trade percentage, such as 95% or higher, it’s either a scam or an overfit strategy that won’t perform in the real world. Every trading strategy has losing trades, and an extremely high win rate is often a sign of manipulation or deception.

Multi-Level Marketing and Referral Schemes

Trading and multi-level marketing (MLM) do not mix. If an investment opportunity relies on you recruiting others to earn profits, it’s almost certainly a scam. Focus on legitimate trading education and avoid these schemes at all costs.

Adopting Skepticism and Avoiding Scams

To avoid scams, adopt an exponential scale of skepticism—the higher the promised returns, the more skeptical you should be. Remember, there’s no quick path to wealth, especially in trading. Do your homework, and be prepared to walk away from anything that seems too good to be true.

Free Trading Education Resources

If you’re serious about learning to trade, start with proper education. At Enlightened Stock Trading, we offer a range of free resources to help you get started. Download our Trader Acceleration Bundle, which includes ebooks, cheat sheets, online courses, and more to guide you on your journey.

Conclusion and Call to Action

My name is Adrian Reid, founder of Enlightened Stock Trading. If you found this guide useful, be sure to explore the rest of our educational content.

If you are ready to take control of your trading results and master systematic stock trading then join The Trader Success System today and discover how in just 6 months you could be fully automated with a diversified portfolio of trading systems that you are 100% confident in!